May 052013

MANILA, Philippines – New York-based Moody’s Investors Service believes that the media business of dominant carrier Philippine Long Distance Telephone Co. (PLDT) would remain an insignificant contributor to the company’s profitability.

Yoshio Takahashi, assistant vice president of Moody’s, said in the company’s new and analysis of its latest credit outlook that PLDT’s media business would remain a insignificant contributor to the company’s profitability over the next two to three years.

“In this context, strengthening PLDT’s media business is a positive move, although it will remain an insignificant contributor to PLDT’s profitability over the next two to three years,” Takahashi stressed.

In the global telecommunications market, he pointed out that quadruple-play services including telephone, wireless, broadband Internet, and television (TV) are increasingly important in attracting and retaining customers and at the same time increasing average revenue per user and broadening the earnings base.

Furthermore, he added that the development of pay-TV would enhance the provision of content across various platforms.

According to him, revenues from PLDT’s TV business accounted for about two to three percent of the total group revenues last year. The company’s net income jumped 12 percent to P35.5 billion last year from P31.7 billion in 2011, while consolidated revenues rose 10 percent to P169.33 billion from P153.96 billion.

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The analyst said the PLDT Group is strategically increasing its investment in the media business to strengthen its ability to deliver multi-media content through its broadband and mobile networks.

PLDT, through Mediaquest Holdings Inc., earlier said it is investing P5.55 billion in the pay-TV business and in print assets this year. This is on top of the P6 billion the PLDT Group invested in pay-TV last year.

PLDT’s wholly-owned subsidiary ePLDT Inc. earlier infused P750 million into its broadcast and print businesses through Satventures and Hasting Holdings Inc. The board of ePLDT earlier approved a P3.6 billion investment for a 40-percent economic interest in SatVentures, which in turn holds the residual 60- percent economic interest in MediaScape Inc. (operator of Cignal TV).

The PLDT board also approved P1.95 billion in additional investment by ePLDT for a 100-percent economic interest in Hastings Holdings that holds minority interests in three major dailies.

The PLDT board also affirmed a P6- billion investment in MediaQuest, of which P4.8 billion would go to free-TV platform TV5 to finance a state-of-the-art Media center in Mandaluyong and the remaining P1.2 billion to expand the operation of pay-TV platform Cignal.

MediaQuest Holdings owns free-TV platform TV5 and pay-TV platform Cignal, while its sister firm Hastings Holdings Inc. has a 20-percent stake in The Philippine STAR, 30 percent in BusinessWorld, and 18 percent in the Philippine Daily Inquirer.

Meanwhile, Moody’s said the decision of PLDT to sell its entire stake in business process outsourcing (BPO) unit SPi Global Holdings Inc. to CVC Capital Partners’ Asia Outsourcing Gamma Ltd for over $300 million and reinvest $40 million for a 19.7-percent interest in AOGL is credit positive.

“This transaction is credit positive for PLDT because it will improve the company’s liquidity and provide a funding source for its investments in media assets. The sale of the BPO business is in line with PLDT’s rebalancing of its business portfolio as it pursues strategic investments in media and content,” Takahashi said.

He added that net cash proceeds from the transaction exceeding $300 million is at least 33.2 percent of PLDT’s cash worth of P37.1 billion and 10.6 percent of its reported debt amounting to P115.8 billion.

“We expect PLDT to use at least part of the cash proceeds to reduce debt and invest in domestic media assets, including further developing its pay-TV business,” he added.

The report said the transaction would improve PLDT’s Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) by 0.1 times to 0.2 times. EBITDA gives an indication on the operational profitability of the business such as how much profit would a company make with its present assets and its operations on the products it produces and sells, taking into account possible provisions that need to be carried out.

The sale of the BPO business should also help improve PLDT’s overall margins as its EBITDA margin was 46 percent in 2012, based on its service revenues, including the BPO business.

PLDT earlier earned the distinction of being the first Philippine corporate to be given investment grade credit ratings by Moody’s, Standard & Poor’s Ratings Services, and Fitch Ratings.

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